Many cryptocurrencies, including Bitcoin (BTC +2.02%) and Ethereum (ETH +1.99%), are highly sensitive to interest rate swings. Let’s see why higher interest rates are generally bad for cryptocurrencies, and why they tend to rally when the Fed reduces those benchmark rates.

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How are cryptocurrencies affected by interest rates?

When interest rates are low, it’s easier for individuals and companies to take out cheap loans. Yields on fixed-income plays — such as CDs, T-bills, and bonds — also decline. Those factors often drive investors toward riskier investments, such as growth stocks and cryptocurrencies. But when interest rates rise, those investors rotate back toward safer investments.

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